More than 12 years after deciding to join, South Korea's largest steelmaker POSCO is following its partners Dongkuk Steel Mill and Vale, and withdrawing from a costly experience in Brazil that it must surely hope to quickly forget.
In a regulatory disclosure on March 9, POSCO Holdings, the steel firm's holding company, announced that it expects to transfer its entire 20% stake in Companhia Companhia Siderúrgica do Pecém (CSP), a 3 million tonnes/year slabs-for-exports joint venture in Pecém in north-east Brazil's Ceará state, to ArcelorMittal Brazil, the local arm of the Netherlands-based steel giant.
"We are trying to boost our asset efficiency by selling non-core assets to which we do not have management rights," the company explained.
CSP was formed in 2008, initially as a 50-50 joint venture between Brazilian resources firm Vale and Dongkuk Steel, a Seoul-headquartered long and flat steel producer with big ambitions.
However, the venture's stretch way back to 2002 when miner Companhia Vale do Rio Doce (CVRD -- now Vale) signed an agreement in principle with Dongkuk and Italian plant builder Danieli to build a 1.5 million t/y slab plant in Ceará state.
The plan was for Dongkuk to lead the project with a 50% share, with Danieli and CVRD investing 30% and 20% respectively.
On paper, the project seemed to make sense. Besides rolling long products at its Korea plants, Dongkuk is also an established producer of heavy plates, especially ship plates.
But having no upstream capacity for making slabs, Dongkuk was forced to rely on POSCO and various other suppliers worldwide including the Japanese steel mills and Australia's BlueScope Steel for the 2.5 million t/y of slabs it needed to re-roll for its plate operation.
The partners reasoned that it would be cheaper and more efficient for CVRD to supply iron ore to a steelmaking venture in Ceará, built with Danieli's help and using natural gas as the energy source, that would export slabs to Dongkuk in Korea.
Sadly, the deal had only just been agreed before Brazil's energy giant Petrobras changed the pricing formula for its gas, forcing the companies to opt for coal-fired instead, and to re-work their numbers. By November 2007, Danieli had pulled out and it was just Dongkuk and CVRD that signed their JV pact.
By then, the plant's planned capacity had expanded to 2.5 million t/y, its cost was put at $1.14 billion and commissioning set for 2011. Yet the troubles continued and in November 2010 POSCO announced it would join the project, some say in response to pressure from the Korean government fearing for Dongkuk's future.
The calamitous collapse of Hanbo Steel in 1997, with debts of $5.9 billion, rocked the country's economy for years after and memories were still fresh.
POSCO E&C, the steelmaker's engineering arm, was awarded the contract to build the slab plant in November 2012, by which time the projected cost had climbed to $4.3 billion. By the time Dongkuk Vice Chairman Chang Sae-wook lit the Pecém plant's blast furnace on June 10, 2016, formally commissioning the plant, the cost had swollen further to $5.5 billion.
Many of the project's problems stemmed from the rapid depreciation of the Brazilian Real but even in the project's planning stages, many Korean experts had pointed out the dangers of logistics risks in shipping slabs so far, and the spiralling investment costs.
In May 2019, Dongkuk had announced it would inject another $150 million into CSP over the subsequent three years "to help improve its financial standing." POSCO and Vale promised similar amounts. The company produced 2.8 million tonnes of steel in 2021 though output in 2022 is not known.
When ArcelorMittal announced in July last year that it had concluded an acquisition deal with CSP's three partners, few were surprised.
"CSP produces high-quality slabs and is cost competitive, ensuring its products are competitive domestically and for exports," said ArcelorMittal CEO Aditya Mittal at the time. "In the short term, we will continue to supply CSP's existing customer base in North and South America.
However, what makes this acquisition so exciting is the medium- to long-term potential and options it presents," he noted.
When the deal finally went through, Vale announced on March 9 local time that the sale price of CSP was just $100,000, with ArcelorMittal paying off CSP's debts of $2.3 billion and taking over the stake of the shareholders.